Jeep's Ambitious Plan to Sell Millions of SUVs

Jeep unveils ambitious growth plans that could see sales of its SUVs grow by an average of 22% between now and 2018.

May 11, 2014 at 11:31AM

If you glance around the auto sector you'll see a smorgasbord of growth opportunities stemming from a burgeoning middle class in both China and India, a stabilizing auto market in Europe, select regions of growth in South America, and even a renewed appetite for autos in the U.S.

But what would you say if I told you there's a brand not named Tesla Motors that has perhaps the most robust growth prospects of all? This is a brand whose management team is currently projecting that its worldwide total sales volume will grow by an average of 22% per year through 2018. Would you care to sport any guesses as to which brand this might be?

Ford or General Motors? Not exactly. Honda, or any of the Asia-based automakers? Keep guessing!

Here's one big hint: read the title of this article again!

Michael Manley

Jeep CEO Michael Manley, Source: Chrysler Group.

According to Jeep CEO Michael Manley, Jeep, following growth of 36% in 2013 to 731,565 units, has the opportunity to produce up to 1.9 million vehicles by 2018. That's an average growth rate of 22% per year between 2013 and 2018. Furthermore, Fiat Chrysler Group (NASDAQOTH:FIATY) CEO Sergio Marchionne and Mike Manley have both been adamant in their predictions that Jeep sales can crest the 1 million mark worldwide this year for a growth rate of at least 37%!

If Jeep's goals are anything, they're ambitious. Let's have a look at why Marchionne and Manley expect such robust sales growth in 2014 and assess some of the key drivers for growth through 2018.

How Jeep will crest 1 million units in global sales this year?
The path to better sales this year is actually quite simple for Manley and Jeep: offer a fuller array of products and eliminate production glitches.

As Marchionne noted in January, one of Jeep's biggest detriments last year was that it lacked an identity in the midsize SUV market. As Reuters pointed out, the Liberty wasn't in production last year and its remaining sales were minimal at best. Furthermore, the Jeep Cherokee's reintroduction after a 13-year absence was only met with two full months of sales beginning in November. 

However, the addition of a full-year of Cherokee sales is expected to be a monumental component to Jeep's success in 2014 and beyond. As you can see below, in just six full months sales of the Cherokee have taken off in the United States.

G
Graph by author; source: GoodCarBadCar

Based on its current trajectory, it could easily top 150,000 units, and could perhaps even challenge the 165,000 units sold in 1999.

Yet, Jeep is a lot more than just the reintroduction of the midsize Cherokee. Production improvements for its best-selling Grand Cherokee in its Jefferson North plant in Detroit, as well as improved output for its resale value king, Jeep Wrangler, will also play a significant role in boosting its 2014 global output up to 1 million units.

Finally, Jeep is introducing a mini-SUV known as the Renegade throughout the world.

Renegade
2015 Jeep Renegade, Source: Chrysler Group.

With some 2.7 million sales annually, the subcompact SUV market is growing rapidly and has seen the majority of its growth in Europe and Asia, which represent a combined 2.2 million of the aforementioned 2.7 million in annual sales. Both Marchionne and Manley are confident that the Renegade could appeal to cost-conscious and emerging-market consumers, especially considering the fact that it'll be the only truly capable off-road subcompact of the group.

Could Jeep really hit 1.9 million SUVs sold by 2018?
Let's put this another way. Between 2012 and 2018 can Jeep really grow its total output by roughly 250%? It's a tall order if you ask me, but given the groundwork that the company laid out this week, not entirely out of the question.

Images

2014 Jeep Cherokee, Source: Chrysler Group.

First, Jeep has outlined a series of remodels and vehicle introductions through 2018 that should help spur growth. According to USA Today, which reported on Manley's key announcements earlier this week, these changes include the reintroduction of the Grand Wagoneer by 2018, as well as the remodels of the Grand Cherokee and Wrangler in 2017, a Cherokee facelift in 2016, and a single replacement for the Compass and Patriot by 2016. All told, 2016-2017 is going to mark a transformational two-year period for Jeep, and it fits right in with Marchionne's plans to spend up to $67 billion in R&D throughout its numerous brands between now and 2018.

Perhaps playing an even larger role than merely refreshing its fleet is the fact that Jeep is taking a truly global approach with its manufacturing effort. Jeep anticipates producing 1 million vehicles in the U.S. by 2018, with an additional 200,000 each coming from Europe and Latin America. Though the U.S. will remain the mainstay of production, its overseas markets such as Asia, Europe, and Latin America are what will be the bread and butter of growth for Jeep.

More specifically, Fiat Chrysler announced plans to manufacture 150,000 Renegades in Melfi, Italy. Later this year it'll also begin production of the Renegade at a new plant in Pernambuco, Brazil. It also reached a deal in China with Guangzhou Automobile Group to begin manufacturing the Renegade in China by 2015 with the two agreeing to add two additional models to the production lines by 2016 (most likely the Cherokee and a China-only model). 

However, simply producing more SUVs doesn't mean they'll sell themselves. According to Manley, this production will coincide with the addition of 1,300 dealerships, primarily in Latin America and Europe, to bring the cumulative global dealership number to 6,000. 

What's an investor to do?
I have to admit, the growth potential for Jeep is pretty staggering -- but it has a lot riding on the success of the Renegade and in being accepted with open arms in China, Europe, and Latin America. There's nothing to say that won't happen and Jeep won't be successful, but production snafus, a weak spending environment in Europe, a hyper-competitive market for subcompact SUVs, and rising fuel prices are all concerns that could be too difficult to predict four or more years into the future.

As an impartial observer of Fiat Chrysler Group, I see a lot of potential and plenty of growth for the company as whole, although I think that Marchionne and Manley may be the only two CEOs in the industry that chronically overestimate their respective brands' capabilities rather than playing their estimates safe. It's not an investment that comes without risk, but if the company can even achieve 80% of its lofty goal by 2018, I believe shareholders will be nicely rewarded.

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Sean Williams is short shares of Tesla Motors, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and recommends Ford and Tesla Motors. It also recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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